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Cheesecake Factory Down 40% in 3 Months: Will it Bounce Back?
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Shares of The Cheesecake Factory Incorporated (CAKE - Free Report) are down 40.4% in the past three months, compared with the industry’s decline of 5.1%. The dismal performance can be primarily attributed to the coronavirus pandemic.
The restaurant industry has been reeling under the impact of declining traffic for quite some time now. The coronavirus outbreak has only aggravated the scenario. We believe the pandemic will continue to hurt traffic and sales. The company announced it is constantly reevaluating the reopening schedule of restaurants. However, it believes that on-premise dining will be impacted for some time owing to the social distancing.
Moreover, the company has suspended share repurchase activity, dividend payment program and new unit developments due to uncertainty revolving around the COVID-19 pandemic. High costs remain a concern. In the coming quarters, the company is likely to witness increase in costs owing to the coronavirus outbreak.
Factors Likely to Help in Recovery
Cheesecake Factory’s technology-enabled initiatives are doing well with feedback on its mobile payment app, CakePay, being positive. The company signed an exclusive national delivery partnership with DoorDash. It anticipates reaping benefits from these collaborative marketing opportunities. The company is also witnessing incremental sales from its delivery service, which continues to roll out nationwide.
It continues to improve its to-go business including online ordering capability. This is a major contributor to growth of the company’s strong off-premise sales channels. Hence, its off-premise business accounted for 14% of total sales in 2018 compared with 12% in 2017. Further, off-premise business comprised 17% of total sales in fourth-quarter 2019. The uptrend continued in first-quarter 2020, as off-premise sales made up nearly 22% of Cheesecake Factory sales. The off-premise sales are currently the backbone of the company as dine-in services have been closed on account of the coronavirus pandemic. Currently, digitalization represents 80% of the company’s sales.
The Zacks Rank #3 (Hold) company stated it possess enough liquidity to survive the coronavirus pandemic for some time. As of Apr 30, 2020, the company’s cash balance totaled nearly $260 million. Moreover, the company anticipates $40 million cash inflow in fiscal 2021 from the NOL carryback provision in The CARES Act. At the end of first-quarter 2020, the company had long-term debt of $380 million. The company believes it has sufficient liquidity to withstand an off-premise-only operating model for the next 18 to 24 months.
Domino's Pizza, Wingstop and Yum China have an impressive long-term earnings growth rate of 12.5%, 11% and 9.5%, respectively.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, SherazMian hand-picks one to have the most explosive upside of all.
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.
Image: Shutterstock
Cheesecake Factory Down 40% in 3 Months: Will it Bounce Back?
Shares of The Cheesecake Factory Incorporated (CAKE - Free Report) are down 40.4% in the past three months, compared with the industry’s decline of 5.1%. The dismal performance can be primarily attributed to the coronavirus pandemic.
The restaurant industry has been reeling under the impact of declining traffic for quite some time now. The coronavirus outbreak has only aggravated the scenario. We believe the pandemic will continue to hurt traffic and sales. The company announced it is constantly reevaluating the reopening schedule of restaurants. However, it believes that on-premise dining will be impacted for some time owing to the social distancing.
Moreover, the company has suspended share repurchase activity, dividend payment program and new unit developments due to uncertainty revolving around the COVID-19 pandemic. High costs remain a concern. In the coming quarters, the company is likely to witness increase in costs owing to the coronavirus outbreak.
Factors Likely to Help in Recovery
Cheesecake Factory’s technology-enabled initiatives are doing well with feedback on its mobile payment app, CakePay, being positive. The company signed an exclusive national delivery partnership with DoorDash. It anticipates reaping benefits from these collaborative marketing opportunities. The company is also witnessing incremental sales from its delivery service, which continues to roll out nationwide.
It continues to improve its to-go business including online ordering capability. This is a major contributor to growth of the company’s strong off-premise sales channels. Hence, its off-premise business accounted for 14% of total sales in 2018 compared with 12% in 2017. Further, off-premise business comprised 17% of total sales in fourth-quarter 2019. The uptrend continued in first-quarter 2020, as off-premise sales made up nearly 22% of Cheesecake Factory sales. The off-premise sales are currently the backbone of the company as dine-in services have been closed on account of the coronavirus pandemic. Currently, digitalization represents 80% of the company’s sales.
The Zacks Rank #3 (Hold) company stated it possess enough liquidity to survive the coronavirus pandemic for some time. As of Apr 30, 2020, the company’s cash balance totaled nearly $260 million. Moreover, the company anticipates $40 million cash inflow in fiscal 2021 from the NOL carryback provision in The CARES Act. At the end of first-quarter 2020, the company had long-term debt of $380 million. The company believes it has sufficient liquidity to withstand an off-premise-only operating model for the next 18 to 24 months.
Key Picks
Some better-ranked stocks, which warrant a look in the same space, include Domino's Pizza, Inc. (DPZ - Free Report) , Wingstop Inc. (WING - Free Report) and Yum China Holdings, Inc. (YUMC - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Domino's Pizza, Wingstop and Yum China have an impressive long-term earnings growth rate of 12.5%, 11% and 9.5%, respectively.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, SherazMian hand-picks one to have the most explosive upside of all.
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.
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